OTTAWA — Small businesses are warning that the carbon tax rebate system outlined by Ottawa on Tuesday could force the private sector to shoulder an unfair portion of the costs, piling on new tax burdens just as expanded Canada Pension Plan requirements come into force next year.

The “deeply worrisome” tax changes will affect everyone from small textile manufacturers to, say, pizza restaurants that use natural gas-fired ovens, said Dan Kelly, president of the Canadian Federation of Independent Business (CFIB). He said the rebate system introduced Tuesday could reignite anger within the small business community that came as a result of Finance Minister Bill Morneau’s small business tax changes last year, which effectively raised taxes on high-wealth individuals and kicked off a political uproar.

“They already picked a fight with business owners with the small business tax changes in 2017, and now it looks like there will be another big one in 2018 over carbon taxation,” Kelly said.

“It may have completely wiped out whatever reconciliation was happening between them.”

He said the carbon tax rebate system, which will be enforced in four provinces, comes just as Ottawa prepares to roll out expanded CPP contributions, which will eventually raise the individual benefit rate by 33 per cent. The expanded contributions begin next year. Employers pay half of CPP benefits, which in turn raises payroll costs.

This will likely turn into a paper chase

Kelly also warned the government against introducing an overly complicated application process to apply for rebates, saying that a series of tax changes over the Liberal’s time in power has increased the administrative burden for business owners. Ottawa on Tuesday promised some form of reimbursements for small businesses in light of the carbon tax rebates.

“This will likely turn into a paper chase,” Kelly said.

Dennis Darby, CEO of the Canadian Manufacturers & Exporters, said the group had “concerns” with the rebate system announced Tuesday as it only redistributes a small portion of tax revenues toward investment in clean technology, reducing the competitive edge of manufacturers.

“Canada already has a significant problem attracting investment from both foreign and domestic sources,” Darby said. “The federal carbon pricing system as it is structured further weakens our investment position.”

Their comments come as Ottawa gradually loses provincial support for its federal carbon tax, long a central plank in the Liberal’s environmental agenda.

The federal carbon tax, which will begin at $20 per tonne in January 2019 and rise by $10 per year, will only be enforced in the four provinces that have not agreed to their own carbon pricing system: Ontario, New Brunswick, Manitoba and Saskatchewan.

On Tuesday, Ottawa detailed how it would enforce its carbon tax rebate system in those four provinces, which effectively involves paying out reimbursements to voters. Environment and Climate Change Canada estimates that a family of four in Ontario will receive around $307 per year in 2019, rising as high as $719 in 2022. For most families, that rebate will be higher their annual carbon tax payments, according to the government — suggesting that at least some of the remaining costs will be shouldered by businesses.

The government said in a statement Tuesday it “recognizes that SMEs can expect to incur additional costs as a result of carbon pollution pricing.” It said it would provide reimbursements for small -and medium-sized companies, but did not specify what mechanism would be used, promising instead to release details in early 2019.

It would be great to see a degree of revenue neutrality on an industrial level

It did, however, provide estimates of the overall value of reimbursements for SMEs, which will total $105 million in Ontario in 2019-20, as well as $30 million in Saskatchewan, $15 million in Manitoba and $5 million in New Brunswick.

Those reimbursements to businesses are expected to rise by 2023-24, up to $255 million in Ontario, $80 million in Saskatchewan, $35 million in Manitoba and $15 million in New Brunswick.

Kelly said he still believes small businesses are likely to pay an outsized portion of the total cost.

“My hunch is that’s going to be a small fraction of the total carbon tax that the small business community is going to pay,” he said, adding that he does not yet know what the overall costs of the carbon tax will be.

Meanwhile, representatives for Canada’s large businesses remained neutral on the rebate system.

Large scale emitters like cement makers, oil and gas companies and mining firms have been largely supportive of carbon taxes, arguing it is the most efficient mechanism to drive down emissions.

Pierre Gratton, head of the Mining Association of Canada, is supportive of Ottawa’s efforts, but warns that if the proceeds from such a tax are not spent wisely, like helping big emitters reduce their carbon footprints, the policy could be deeply harmful to mining companies.

“It would be great to see a degree of revenue neutrality on an industrial level,” he said.

Revenues from the carbon tax on industrial-sized emitters are separate from the revenues outlined in Ottawa’s plan on Tuesday, which instead applies to consumers.

The mining association would like to see revenues from the heavy emitters fund plowed back into programs that help companies invest in clean technology, as is the case under some provincial carbon tax plans. If those funds are instead used for general government revenues, it could intensify pressure on large-scale firms as Canada’s carbon tax rises each year.

“We do agree that a tax is the best way to send a price signal and to drive energy efficiency reductions,” Gratton said. “But if it’s just a pure additional cost then it’s not going to achieve its objective — it’s just going to drive investment out of the country.”

Ottawa, for its part, has already introduced programs that reinvest capital back into clean technologies, which has generated billions for new technologies in recent years.

The Canadian Manufacturers & Exporters and Canadian Association of Petroleum Producers have also called for policies that reinvests money back into greener technologies.

Justin Trudeau’s Liberal government has released its last budget before the fall federal election

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